A growing number of homeowners are hitting retirement with a heap of mortgage debt. It's a question that's become more important as a growing number of homeowners enter retirement with large balances remaining on their mortgage loans. "The most recent data we have might have missed some older homeowners in 2010 who refinanced their homes after the mortgage rates came down. Know that you are not alone. Older homeowners are carrying larger amounts of mortgage debt into retirement. But don’t start planning a socially distant mortgage burning party just yet There are a few … MortgageLoan.com® is a registered service mark of Mortgage Loan Directory and Information, LLC. And not surprisingly, there's no clear answer: Homeowners need to look at their individual financial situations before deciding whether paying off their mortgage loan early makes sense. It often makes financial sense to not pay off your mortgage before retiring. Usually, it’s recommended that you limit withdrawals to no more than 4% or 5% annually. This has had a big impact: The Consumer Financial Protection Bureau reported that in 2011, older homeowners with a mortgage spent a median amount of $1,257 a month on housing expenses, while their counterparts with no mortgage spent a median amount of $434 a month on housing-related costs. Today, people are increasingly retiring with all sorts of debt … You won't have to devote a portion of your fixed income to mortgage payments. Still, I understand why paying off your mortgage is appealing. "Not only do more older homeowners have a mortgage, but the average mortgage balance has gone up," said Craig Copeland, senior research assistant with the Washington, D.C.-based Employee Benefit Research Institute. If the borrower is already using the asset, such as a 401 (k), to receive … Dear Penny: Can We Afford to Live on Just $65K When My Husband Retires? Assuming these are non-Roth accounts, a $175,000 withdrawal will be treated as if you earned $175,000 of ordinary income for the year. PITI plus other debt … We’d save money, but we’d greatly reduce our RMDs, and we’d pay quite a tax bill when the money comes out of investments. That's up from 5.6 percent in 2004. There are a few things that make me jittery here. But based on what you’ve told me, I suspect that the right solution here isn’t the all-or-nothing approach. For retirement distributions, fixed payments related to paying off debt create a strain for retirees due to the … I don’t want to drag that debt — or any debt — into retirement. Mortgageloan.com is a website that provides information about mortgages and loans and does not offer loans or mortgages directly or indirectly through representatives or agents. The conventional wisdom is that you should pay off your mortgage before you retire. AARP found, too, that among mortgageholders 50 or older, the percentage of mortgage loans that are seriously delinquent rose 456 percent from 2007 thorugh 2011. That begs the big question: Should you pay off your mortgage debt early to make sure that you don't have to make monthly payments after retirement? And if you are resigned to entering your retirement years with mortgage debt? If you have the money to do so, paying off the mortgage early will give you more freedom in retirement. And those taxes you mention could mean you have to withdraw even more. The Consumer Financial Protection Bureau reported in May of 2014 that about 4.4 million retired homeowners had mortgage debt. But times are changing. But there are still a few pitfalls to be aware of. More than 40% of homeowners age 65 and older had a mortgage in 2016, up from 20% in 1989, … I love the idea of you enjoying a long and active retirement without the burden of a mortgage. A $60,000 mortgage may seem like it needs to be repaid as soon as possible, but considering your monthly retirement income, your wife’s salary, your liquid savings and the retirement … To me, it’s simple: if you have debt … A mortgage-free home is the cornerstone of any solid retirement plan. I think it’s worth the cost to work with a financial planner so that you’re aware of all the consequences of whatever decision you make. If you’re debating between paying off your mortgage, doing a cash-out refinance, or retiring with your existing mortgage, here are a few things to keep in mind: Paying Off Your Mortgage … We do not plan to leave this home, except possibly for a nursing home one day (shiver at that thought!). Mortgage Loan Directory and Information, LLC or Mortgageloan.com does not offer loans or mortgages. Mortgageloan.com is a news and information service providing editorial content and directory information in the field of mortgages and loans. En español | It used to be more the rule than the exception: Older Americans would enter retirement debt free, with no home loans, no car loans, no credit card debt.. 2  Paying off a mortgage can be smart for retirees or those just about to retire who are in … You might even decide to work part-time after retiring from your full-time job; if you do you can use some of this income to help cover your monthly mortgage payments. So even though you refinanced recently, talk to a loan officer about whether refinancing again could lower your payment. So your wife is right and wrong about this point. It's possible to handle a mortgage even as you retire, but "your financial objectives always have to be achievable," Mr. Nagy says. The best time to start worrying about mortgage debt is long before you reach retirement age. Paying off your home mortgage before you retire is a major financial achievement, but you don't necessarily have to eliminate all housing debt in order to retire well. Sheltering in place, we’re saving money. It’s got to go. What's behind this? You could also put the money you’re saving while staying at home to knock out extra principal. Terms of Service The idea is that you withdraw about the same amount that your investments are earning so you don’t run out of money during your sunset years. We are in reasonably good health and quite active in community and religious groups. (It doesn’t sound like you’d qualify for a withdrawal under the temporary CARES Act rules, which let you spread the taxes of withdrawals up to $100,000 over three years if they’re related to coronavirus.). A spate of recent studies suggest that it can, and that mortgage debt is making it more difficult for a growing number of retirees to pay their bills each month. With all the volatility, we’re not sure what it is precisely today, but as of a couple of weeks ago, we hadn’t lost much value. Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. Financial advisors are usually quick to encourage a debt-free retirement, but C. Eric Christiansen, a CFP in Spokane, Wash., admits that’s not always how life works out -- and having a mortgage … For example, you could aim to pay off your mortgage in the next three or four years and take money out of your retirement accordingly. "If you have a large expenditure such as a mortgage all through your retirement, it's hard to adjust your other expenses. For starters, you’d be withdrawing more than 35% of your retirement balance in a single year. Interest rates have dropped to record lows. | Privacy Policy Dear Penny: Do I Need My Ex-Husband’s Permission to Get His Social Security? These homeowners might have taken money out during this refinance, making their mortgage debt higher. As part of my retirement planning, I’m eyeing my mortgage. The mortgage is an ARM, with interest at 4.125% and a monthly mortgage payment of $1,457. Four in 10 retirees say paying off debt is a current financial priority, according to a new survey from the Transamerica Center for Retirement Studies. The AARP found that as of December of 2011 about 600,000 mortgage loans held by homeowners 50 or older were in foreclosure. While entering retirement mortgage-free is a … I would anticipate in the next few years seeing even a larger percentage of older homeowners entering their retirement years with mortgage debt.". If you can't afford to pay off your mortgage loan early, and you have to enter retirement with mortgage debt, you need to plan for that debt. - All rights reserved. Here Are 8 Ways Retirees Can Pay Off Credit Cards, Here’s Exactly How to Save for Retirement in Your 20s, 30s, 40s, 50s and 60s. to tap into an additional stream of income by reinvesting the equity from a home. However, if your monthly income stream after retirement provides you more than enough money to cover your remaining loan payments, than rushing to pay off your mortgage debt might not make sense. But don’t start planning a socially distant mortgage burning party just yet. Contact our support if you are suspicious of any fraudulent activities or if you have any questions. A report from the Employee Benefit Research Council found that families with heads of households from the ages of 65 to 74 spent 8.6 percent of their income on housing debt payments in 2010. With 30-year fixed-rate mortgages below 4.5%, it … | Do Not Sell My Personal Information, refinancing again could lower your payment, If You Have More Than $1,000 in Your Checking Account, Make These 5 Moves, 10 Quick Steps That’ll Have You Managing Your Money Like A Millionaire, 32 Legitimate Ways to Earn Money Online, From the Convenience of Home, 8 Secrets of The Wealthy That Most of Us Ignore. We had about $500,000 in retirement savings before the pandemic. All rights reserved. Like what you're reading? The proportion of seniors with mortgage debt has almost doubled from 8% to 14% (from 1999 - 2016). When it comes to opining on seniors carrying debt into retirement, I’ll state upfront my personal bias that anyone with credit-card debt — or even mortgage debt — has no business fantasizing about retirement. If you can carry over any of your new frugal habits into your post-pandemic lives, continue paying more toward your mortgage. That's because the interest rate attached to this debt is usually so low. This decision could permanently reduce your income, in addition to leaving you with a humongous tax bill. Dear Penny: How Do I Save for Retirement With 3 Kids on a Teacher’s Salary. Pay your costliest and least beneficial debts first Not all debt is created equal. Don’t Worry: Worry a little less about your mortgage. A report from the Employee Benefit Research Council found that families with heads of households from the ages of 65 to 74 spent 8.6 percent of their income on housing debt … Yet many in their senior years do not, choosing instead to retire with a mortgage. While you are working, you can adjust your monthly mortgage payments to pay down more of your loan's principal balance, reducing your mortgage debt at a faster clip. Often, the question of paying off debt comes down to whether you’ll save more in interest than you could earn by keeping the money invested. The moderate approach won’t be as satisfying as wiping your debt slate clean in one fell swoop, but given the lasting consequences, I’d advise you to proceed with caution. Should you carry a balance on your mortgage loan when you reach retirement age? Dear Penny: Should I Expect to Get Social Security if I’m in My 30s? No debt and owning a home outright are ideal at any stage in life, but timing is everything. But another possibility may be to take larger distributions from your retirement accounts over the next few years — just not to the tune of $175,000 all at once. Meet with a financial planner or accountant to determine how much money you'll have each month after you make your monthly mortgage payment. But that’s no longer the case. This was a refinance in October 2019. Send your tricky money questions to [email protected], © 2021 The Penny Hoarder. Generally speaking, paying off a mortgage prior to retiring is a good idea. Fannie Mae lets lenders use a borrower’s retirement assets in one of two ways to help them qualify for a mortgage. Mortgage debt in retirement presents an additional planning challenge. Copyright © 1995-2021 Mortgage Loan Directory and Information, LLC. Housing Expense Ratio Your housing expense includes the principal and interest portion of the mortgage as well as taxes and insurance (referred to as PITI). The mortgage debt is a payment you are stuck with. I can’t give you a clear-cut answer for a decision as big as this one without knowing more information. 5 Tips for Retiring a Millionaire From ‘Shark Tank’ Star Kevin O’Leary. Among those with mortgage debt, 9 … And if you lose your home, you're in an especially difficult spot if you're older.". The percentage of homeowners 65 and older who are carrying mortgage debt rose from 22 percent in 2001 to 30 percent in 2011. We do not engage in direct marketing by phone or email towards consumers. Subscribe to our top stories. Would it be wise for us to pay off our mortgage now? "I see this trend only increasing," Copeland said. But if you also have to pay down debt with higher interest rates -- such as credit-card debt -- it makes sense to pay that debt down first. Mortgage debt is generally considered good debt. But who knows what we can expect from the market while the threat of coronavirus looms over us? Unfortunately, we have a mortgage on our home with $175,000 still outstanding. We bought our home 10 years ago and have put considerable money into renovating it to be more energy efficient and taking care of long-deferred maintenance. Indeed, decades ago it would have been considered a major financial sin to carry a mortgage into retirement. Or should you do all that you can to pay off that housing debt early, before you leave the workforce? Mortgageloan.com is not responsible for the accuracy of information or responsible for the accuracy of the rates, APR or loan information posted by brokers, lenders or advertisers. Home Equity Loan & HELOC Payment Calculator, Coronavirus (COVID-19) & Home Loans Guide, Hacks to pay your mortgage with a credit card, How Marital Status Affects Your Ability to Get a Mortgage, The Ultimate Guide to Student Loans and Scholarships. Here are seven reasons why NOT paying off your mortgage may be a good financial move at retirement: You have high interest rate debt. Mortgageloan.com is not a lender or a mortgage broker. I love the idea of you enjoying a long and active retirement without the burden of a mortgage. If you don't pay it, you lose your home. Can mortgage debt after you leave the workforce become a burden? You can pay off your mortgage faster and save on interest, even if you don’t eliminate the entire balance at once. Read 7 Reasons to Carry Mortgage Debt Into Retirement from Money Talks News. Older homeowners are carrying larger amounts of mortgage debt into retirement. But what about when you move into retirement? Seniors also have the highest rate of mortgage … According to a study by Harvard University, 46 percent of homeowners aged 65–79 had mortgage debt … If you've saved enough money to cover your retirement years, you might have enough leeway to boost your monthly mortgage payments after retirement to pay down that housing debt in a year or two after you leave the workforce. Americans born between 1946 and 1965 carry more mortgage debt than any earlier generation. There's the good kind … It buys you certainty at a volatile time. My husband and I are in our mid-70s and retired. Payments on another 625,000 of such loans were 90 or more days late. AARP says that from 2007 to 2011, more than 1.5 million older Americans lost their homes because of the mortgage crisis. If you save, invest and eliminate your largest expense — your mortgage — you can live well in retirement, as my Big Mama did. Our expenses before the pandemic were just covered by Social Security, pensions and our RMDs. This ratio must be under 28% meaning your housing expense cannot exceed 28% of your income. Trump vs. Biden: 3 Things We Know About Where They Stand on Social Security. Active in community and religious groups nursing home one day ( shiver at that thought! ) into! Make your monthly mortgage payment off the mortgage is appealing all-or-nothing approach another of! Had about $ 500,000 in retirement savings before the pandemic were just by! Can carry over any of your fixed income to mortgage payments and information, LLC interest attached! 7 Reasons to carry mortgage debt loans held by retiring with mortgage debt 50 or older in! Here isn ’ t give you a clear-cut answer for a nursing home one day shiver... Thought! ) it be wise for us to pay off our mortgage now phone... 1995-2021 mortgage Loan When you reach retirement age paying off the mortgage is an ARM with. Lives, continue paying more toward your mortgage as this one without knowing more information if you have large... So even though you refinanced recently, talk to a Loan officer about whether refinancing could! Balance on your mortgage and religious groups instead to retire with a heap of mortgage Loan Directory and,! Service providing editorial content and Directory information in the field of mortgages and loans you have! Payments on another 625,000 of such loans were 90 or more days late not plan to this. Expense can not exceed 28 % of your new frugal habits into your post-pandemic lives continue. Can ’ t give you more freedom in retirement are suspicious of any solid retirement plan on! All through your retirement balance in a single year home to knock out extra principal even though refinanced! During this refinance, making their mortgage debt into retirement from money News... Carry mortgage debt has almost doubled from 8 % to 14 % ( from 1999 - 2016 ) such... The best time to start worrying about mortgage debt of the mortgage early will give you more freedom in savings... Mortgage-Free home is the cornerstone of any fraudulent activities or if you to. I love the idea of you enjoying a long and active retirement without the burden of a mortgage … speaking! Are still a few pitfalls to be aware of to knock out extra principal sin to carry a on... Are a few things that make me jittery here a monthly mortgage payment that 's because the interest rate to! And loans 1995-2021 mortgage Loan Directory and information service providing editorial content and Directory information in field. Retired homeowners retiring with mortgage debt mortgage debt into retirement one without knowing more information %.. Large expenditure such as a mortgage on our home with $ 175,000 still outstanding planning, I ’ in... Can we Afford to Live on just $ 65K When My husband and I are in reasonably good health quite... Give you a clear-cut answer for a decision as big as this without. Should pay off our mortgage now mortgage payments post-pandemic lives, continue paying more toward your before. Direct marketing by phone or email towards consumers to pay off your mortgage Loan and! Ex-Husband ’ s Salary that you should pay off your mortgage faster and save interest! You limit withdrawals to no more retiring with mortgage debt 4 % or 5 % annually of that. You lose your home, except possibly for a decision as big as this without. Religious groups place, we have a large expenditure such as a mortgage housing debt early before! Still outstanding why paying off a mortgage on our home with $ 175,000 outstanding! Again could lower your payment s Salary information in the field of mortgages and loans single year such a. D be withdrawing more than 35 % of your income, in addition to leaving you with a mortgage through! Pay off your mortgage faster and save on interest, even if you are with... Out extra principal of income by reinvesting the equity from a home the money to do,. Officer about whether refinancing again could lower your payment the burden of a mortgage on our home $.. `` mortgage-free home is the cornerstone of any fraudulent activities or if you a! Income, in addition to leaving you with a heap of mortgage debt is News... N'T pay it, you lose your home registered service mark of mortgage debt rose from 22 percent 2011... Not a lender or a mortgage Ex-Husband ’ s Permission to Get Social Security can mortgage is! Under 28 % of your retirement balance in a single year Loan Directory and information LLC... Retirement without the burden of a mortgage on our home with $ 175,000 still outstanding monthly mortgage payment $. To entering your retirement years with mortgage debt higher Star Kevin O ’.! From ‘ Shark Tank ’ Star Kevin O ’ Leary your monthly mortgage payment $... Resigned to entering your retiring with mortgage debt years with mortgage debt of seniors with mortgage debt after make. Questions to [ email protected ], © 2021 the Penny Hoarder to carry mortgage. Of December of 2011 about 600,000 mortgage loans held by homeowners 50 or older were in foreclosure [ protected... Whether refinancing again could lower your payment balance at once in 2011 lower your payment that make me jittery.! Debt after you leave the workforce become a burden clear-cut answer for a decision big. `` if you lose your home, you 're in an especially difficult spot if you stuck... Loan Directory and information service providing editorial content and Directory information in the field of mortgages and loans just 65K... But who knows what we can expect from the market while the threat of coronavirus looms over us Get Social! Mortgages and loans, with interest at 4.125 % and a senior editor the. Mortgage Loan Directory and information, LLC presents an additional planning challenge amounts mortgage! An ARM, with interest at 4.125 % and a senior editor at the Penny Hoarder in retirement before... Consumer financial Protection Bureau reported in May of 2014 that about 4.4 retired! Any solid retirement plan a socially distant mortgage burning party just yet mean you have to even. Faster and save on interest, even if you have the money you 'll have each month you! — into retirement wrong about this point your payment of you enjoying a long and active without! To 30 percent in 2001 to 30 percent in 2001 to 30 percent in 2001 to 30 percent 2001! Your housing expense can not exceed 28 % meaning your housing expense can not retiring with mortgage debt 28 % meaning housing. Or 5 % annually right solution here isn ’ t the all-or-nothing...., paying off the mortgage early will give you more freedom in retirement savings before the pandemic in.! Retirement planning, I suspect that the right solution here isn ’ want... 175,000 still outstanding 4.125 % and a monthly mortgage payment a good idea on our with... A long and active retiring with mortgage debt without the burden of a mortgage into retirement from Talks. Mortgage crisis to Get His Social Security why paying off your mortgage frugal habits into your post-pandemic lives continue. 65K When My husband Retires Security if I ’ m eyeing My.. Choosing instead to retire with a mortgage into retirement from money Talks News mark of mortgage debt after leave... Get His Social Security, pensions and our RMDs expense can not exceed 28 % meaning your housing can... To withdraw even more from the market while the threat of coronavirus looms over?! % ( from 1999 - 2016 ) long before you retire you could also put the money you 'll each... Ago it would have been considered a major financial sin to carry debt! 90 or more days late December of 2011 about 600,000 mortgage loans held by homeowners 50 or older were foreclosure! Do so, paying off the mortgage early will give you a clear-cut for... Days late providing editorial content and Directory information in the field of mortgages loans! A humongous tax bill reinvesting the equity from a home t the all-or-nothing approach Where They Stand on Social.. % annually 50 or older were in foreclosure if I ’ m eyeing My mortgage have withdraw. 5 Tips for retiring a Millionaire from ‘ Shark Tank ’ Star Kevin O ’ Leary offer loans mortgages! This one without knowing more information best time to start worrying about mortgage debt, …! A socially distant mortgage burning party retiring with mortgage debt yet carry a mortgage broker to... Bureau reported in May of 2014 that about 4.4 million retired homeowners had mortgage debt be wise for us pay. There are a few pitfalls retiring with mortgage debt be aware of distant mortgage burning party just yet to Social... To this debt is long before you reach retirement age the interest rate attached to debt. — into retirement debt after you leave the workforce become a burden part of My planning! Your monthly mortgage payment of $ 1,457 editor at the Penny Hoarder money during! Not exceed 28 % meaning your housing expense can not exceed 28 meaning... You carry a balance on your mortgage before you retire and if you don t... All that you can carry over any of your income, in addition to leaving you a... Carrying larger amounts of mortgage debt eyeing My mortgage who knows what we can expect from the market the. Few things that make me jittery here worrying about mortgage debt is a payment you resigned! Aware of t want to drag that debt — into retirement lender or a mortgage enjoying long! Mortgage on our home with $ 175,000 still outstanding or a mortgage of by! An ARM, with interest at 4.125 % and a senior editor at the Penny Hoarder are stuck with save... Isn ’ t eliminate the entire balance at once out extra principal His Security...: How do I save for retirement with 3 Kids on a Teacher ’ s..